Updated July 29, 2026. Quick answer: Exercising and tendering inside one taxable year changes the answer. IRC §56(b)(3) switches off §421 for ISO stock when computing alternative minimum tax — which is what creates an AMT item on exercise in the first place. But that provision applies §422(c)(2) where the disposition and the AMT inclusion fall in the same taxable year and not otherwise. Same year, and the two events meet. Straddle a year end, and they do not.
The provision
IRC §56(b)(3), headed “Treatment of incentive stock options”, provides that “Section 421 shall not apply to the transfer of stock acquired pursuant to the exercise” of an incentive stock option for alternative minimum tax purposes, and applies §422(c)(2) where the disposition and the inclusion fall in the same taxable year.
Section 421 is the provision that ordinarily defers recognition on an ISO exercise. Turning it off for AMT is the entire reason an exercise can generate an AMT liability in a year you received no cash. The same-taxable-year condition is what determines whether a later sale interacts with that item or leaves it standing.
| Sequence | Consequence |
|---|---|
| Exercise and tender in the same taxable year | The disposition and the AMT inclusion fall in one year, and §422(c)(2) applies |
| Exercise in December, tender in January | Two taxable years. The AMT item stands on its own in the first |
| Tender inside the ISO holding periods | A disqualifying disposition, with ordinary income under §421(b) |
| Tender after two years from grant and one year from exercise | The ISO holding periods in §422(a)(1) are met |
Why a tender offer forces this question. A tender offer arrives on a window you did not choose, and the window may sit either side of a year end. Unexercised options often have to be exercised to participate at all, which means the exercise and the sale get compressed into whatever tax year the company’s calendar happens to land in. The sequencing is not a planning choice so much as a fact you need to establish before you decide how much to tender.
This page states which provisions govern the interaction and what turns on the taxable year. It does not compute your AMT, and the arithmetic depends on figures that are adjusted annually — the calculator takes those as inputs rather than this page asserting them.
If part of the tender price sits above the company’s own valuation, there is a second character question layered on top — the premium may not be capital gain at all.
Sources
IRC §56(b)(3); IRC §422(c)(2) and §422(a)(1); IRC §421(b). Fetched July 2026.
This states what the cited authority says. It is not tax, legal or investment advice. A tender offer runs on documents specific to your company and your grants, and nothing here tells you whether to sell.